Any increase in price disclosure will assist Australian cattle markets to work more efficiently in matching beef and co-product production to customer requirements.
That was a primary conclusion of the “Milestone 4” report completed in April 2015, as part of the price transparency project overseen by Meat & Livestock Australia.
The Milestone 4 report looked at the likely benefits improved beef price transparency could provide, while the Milestone 5 report, completed and released last month, looked more specifically into the practicalities of implementing particular price transparency systems across the Australian cattle supply chain.
The Milestone 4 report, released last month at the same time as the Milestone 5 report, was unambiguously positive about the potential benefits of mandatory price reporting in Australia’s cattle industry.
“The clearest benefit of OTH and paddock sale price transparency would be enabling producers to easily ascertain who to sell to on any given day and at what price, thus boosting competition between processors (and live exporters) and raising average producer prices,” it said.
However, it noted that the extent of this price benefit was dependent on good producers are in obtaining the best price on offer, through agents, contact with processors (or live exporters) or watching OTH and saleyard prices for similar cattle.
Related benefits of mandatory price reporting for Australia’s cattle identified by the report included:
- helping producers to better meet processor target specifications or grades – hence, raising average producer prices (as well as significantly benefiting processors and consumers).
- Assisting producers to decide whether to target different cattle grade(s), though this is probably possible, to some degree, now with the use of detailed processor grids.
- Helping producers in other medium- to long-term production, marketing and investment decisions, such as when to sell, whether to alter cattle breeds or feeding and whether to purchase more land or sell.
- Assisting potential investors (especially those from outside the industry) and capital providers (banks) to more confidently assess the merits and risks of potential investments in Australian cattle farms.
Secondary or indirect benefits of full cattle price transparency identified by the report included ensuring the integrity of cattle sales and allaying concerns about increased beef processing industry concentration.
“This seems a particularly attractive benefit of price transparency in the Australian context, given the current lack of trust between many producers and processors and retailers,” the report noted.
The authors said the advent of mandatory reporting of processor cattle purchase prices in the US had also assisted to underpin the provision and uptake of a broad range of cattle selling options, including forward, formula and futures markets.
“Full cattle price transparency is likely to be of direct benefit to processors themselves (as occurred in the US), in better benchmarking their prices against those being paid by others.
“Together with wholesale price transparency, it would also assist existing processors or potential new entrants to make investment decisions.”
The report also suggested that full cattle and beef price transparency could speed up the process of price discovery and smooth out price peaks and troughs, but added that assertion required further testing with more data.
“Price transparency allows the implementation of derivative mechanisms such as futures and options which alleviate price volatility. It achieves this by assisting cattle producers, processors, wholesalers, exporters, retailers and foodservice operators to more quickly direct production or purchases towards areas of greatest demand, to better meet latest market specifications and to produce at times when demand is highest.”
The study team said it believed the following options provided most potential to improve price transparency in Australia:
- Beef export prices – review and negotiate release of the shipment values and volumes held by Australian Customs. This data would eventually be used to develop cutouts for a number of categories including export steer, export cow and, subject to data availability, grain fed steer.
- Retail beef prices – review availability of individual bar code data for the full volume and value of retail beef cuts and trimmings transacted in the major supermarket retail sector. Calculate a supermarket steer cutout. Nielsen SKU scan data.
- Over the hook grid cattle prices – subject to processor and producer support, exploring the options to increase and expand cattle price transparency in relation to grid prices, prices for cattle actual sold and treatment of discounts, downgrades – to enhance value based marketing.
- A means of mandatory or voluntary entry of cattle prices into an online board after the final price is established and the HSCW is obtained.
- Use learnings from USA Mandatory Price Reporting and other programs including those of US Beef Board to assess tools to improve cattle and beef price transparency.
To read the full Milestone 4 Report click here